The Day My Financial Life Changed: Loan Forgiveness

For today’s fabulous Finance Friday, I want to write about something near and dear to my heart: Public Service Student Loan Forgiveness.

See, once upon a time, I chose to go to a rather expensive graduate school. Said graduate school left me in a lot of debt. We’re talking a LOT of debt…like mortgage-size debt. Unless you live in Manhattan. If you own property in Manhattan, it is likely 8x the size of my student loan debt. But other than all the wealthy Manhattanites who read my blog (and I’m sure there are a lot of them), you may live in a house that cost you about the same amount of money as my education. I very much value my education, but the significant debt it put me in is also a stress and a burden.

Here’s a little story about how some of that stress and burden was lifted for me:

I had just moved to Tacoma and I got together with two women whom I had gone to graduate school with. One of them graduated a few years prior to me. I began talking to her about my concerns as I anticipated trying to pay back loans (I was fresh out of graduate school, so hadn’t started paying the loans back yet). I had already done the math, and to pay my loans off according to a standard prepayment plan would mean that HALF of my post-tax income would go to student loan payments. That’s right, half. Of course, I knew that there were options of slowing payback down, but in the end, those options would mean paying more interest over time, and I was interested in getting rid of debt, not increasing it.

Anyway, I asked one of the women how paying back student loans was going for her, and she said, “I’m doing Student Loan Forgiveness.”

Say what?

“What’s that?” I asked.

She explained to me that there is a program in place in which people who work in “public service” jobs (for non-profits or for the government) can make “Income-based repayments” on their student loans, and as long as they make their payments on time and continue to work in public service for the duration of loan repayment, the loans will be forgiven after 10 years.

I say again, say what?

I was a little skeptical, but I went home and did some googling. I quickly learned that she was right. When I realized that this might be a possibility for me I was a) relieved, b) nervous, and c) pissed. I was relieved because this news would make my life, and my family’s life 100% easier. A huge burden lifted! I was nervous because of course, there is risk involved with this plan: By paying less than the standard repayment requirement, I’m essentially not paying back my loans really at all. My payments are low enough right now that I don’t even pay into the principle of the loan, and my mortgage-sized student loan debt grows slowly bigger by the day. If I stopped working in the public service, or if the government decided to do away with public service loan forgiveness, I’d have a massive amount of debt! Way more than what I started with! That is terrifying. Finally, I was pissed because no one in the Financial Aid office at my graduate school EVER spoke to me about this possibility. I mean, you have kind students who are shoveling tons of money at you, and you can’t get off your butts to educate them about ways to make all that money-shoveling less painful? Yep, I’m still pissed about it.

Anyway, I was very grateful that I happened to have this conversation with this friend. It completely changed my financial outlook. Since learning about the program, I have told tons of friends about it as well. As I said, there is some significant risk involved, but it also has the potential to be a huge blessing. I’m praying and hoping that if I keep dutifully “serving the public,” my loans will magically disappear in 8.5 years!

I wanted to share about the program on the blog, just in case there are some readers out their who can benefit from this program.

Have you ever heard of public service loan forgiveness? What do you think you would do if you were in my situation? Would you try for forgiveness, or try to pay the loans off ASAP?